The landscape in the financial sector has completely changed with the arrival of fintechs. The unparalleled leading role that they currently play has been made possible thanks to the penetration that they have achieved in very specific markets, namely payments, loans and asset management. Fintechs offer a wide range of dynamic and varied products and services, and this has been key for their rapid growth. Furthermore, they also often fall outside of the regulatory jurisdiction of central banks, operating across borders and without the need to supply information about their activities. This brings with it the potential risk of data and security breaches that can challenge the very stability of the financial system.

According to a 2020 report by Deloitte, Spain ranks third for the number of fintechs operating in the country. Meanwhile, a 2021 study by E&Y puts Spain in seventh place. According to data from the Startups Observatory of Spain at the Bankinter Innovation Foundation, the Spanish fintech sector received €542 million of investment, mainly in the form of private capital, in 2021—some 151% more than in 2020. In its 2020 study titled “Fintech companies: the landscape, challenges and initiatives in detail: the landscape of the sector”, the Bank of Spain claimed that 722 fintech companies were operating in Spain, of which 45 were inactive due to insolvency or liquidation. Furthermore, only 95% of the remaining 677 fintechs were registered on an official register.

The importance of Spanish fintechs for the overall financial ecosystem is undeniable, even if it is still not easy to obtain official statistics regarding their activities and classification. Regardless, the trends revealed in the reports are similar and show significant growth both in terms of volume and in the range of services on offer, particularly in large cities and those fintechs that are very focused on services for businesses (B2B).

According to GDS Modellica, regulations, compliance and overall risk management represent a significant operational load for the financial services sector. Risk management is an essential part of the strategic processes of fintechs to guarantee their credibility, security and quality. As a result, they need to be prepared to face any risk that could have an impact on their operations. Such risks include fraud, risks to personal data (customer privacy) and cybersecurity, and then there is regulatory compliance (each country has its own regulations which can change at any time) and operational, financial (market, credit or liquidity), legal or reputational risks.

In the fight against fraud, GDS Modellica believes that “financial institutions need to have better tools that are deployed across the company in order to beat scammers”. They claim that fintechs should drive innovation to attract and retain more users, but they also need to strengthen the security of their platforms and automated systems to better protect user data. Antonio García Rouco, managing director at GDS Modellica, claims it is vital that fintechs detect and anticipate the main risks associated with the services that they offer. Financial risk management and prevention provide considerable benefits when it comes to approving credit and loans.

The rise of fintechs and the impact of their innovations have led the financial authorities to seek appropriate instruments to promote these innovations in the market without undermining consumer production or the stability of the financial system as a whole. In Spain, there is an instrument called the financial sandbox, which is a controlled space that combines innovation and user protection. It assures an appropriate fit for innovations within the financial system and provides a legal security framework for emerging companies in the world. The sandbox is a secure space where finance companies can try innovative technological projects and the risk to participants and the financial system has been mitigated or minimised. Since the tool was first introduced in 2021, almost 30 projects have been accepted. Just like traditional financial institutions, fintechs need to manage risk in a comprehensive manner to ensure the continued provision of high-quality services and products.